Emerging risks, emerging opportunities

© Warren Dresner, Willis Re

This presentation has been prepared for the Actuaries

Institute 2015 General Insurance Half Day Seminar.

The Institute Council wishes it to be understood that

opinions put forward herein are not necessarily those of the

Institute and the Council is not responsible for those

opinions.

Agenda

• What can we learn from the past?

• Where risks may emerge in future

• Managing emerging risks

• Turning risks into insurance opportunities

As we know, there are known knowns; there are things we know we

know. We also know there are known unknowns; that is to say we

know there are some things we do not know. But there are also

unknown unknowns—the ones we don’t know we don’t know.

- Donald Rumsfeld, 2002

Although the language may be tortured, the basic point is both

valid and important ... Having defended Rumsfeld, I'd point out that

the considerations he refers to provide the case for being very

cautious in going to war.

- John Quiggin, 2002

As we know, there are known knowns; there are things we know we

know. We also know there are known unknowns; that is to say we

know there are some things we do not know. But there are also

unknown unknowns—the ones we don’t know we don’t know.

- Donald Rumsfeld, 2002

Although the language may be tortured, the basic point is both

valid and important ... Having defended Rumsfeld, I'd point out that

the considerations he refers to provide the case for being very

cautious in going to war underwriting risk.

- Warren Dresner, 2015

What can we learn from the past?

• Common themes

– May be known unknowns or unknown unknowns

– Uncertainty about impact

– Perceived to be significant risk

Where risks may emerge in future

• Legal / tort / regulatory system change

• Societal and behavioural norms

• Climate change

• Technology and innovation

• The ‘Internet of Things’

• ‘New Capital’

Technology and innovation

E-cigarettes

3-D Printers

Hydraulic Fracturing

Electromagnetic fields (EMFs)

Genetically modified Organisms (GMOs)

Artificial intelligence Pharmaceutical

Financial advisory

Systemic Food Chain risks

Nano-technology

Driverless vehicles and drones

• Some commercial

applications already in use

• Coverages at risk include PL,

PI, Bodily injury covers

• Invasion of privacy and nuisance may become

additional issues.

The Internet of Things

• Revolutionary

• Increased connectivity raises questions about network and

data security

• Power of Big Data

– Can be positive and negative for insurers

Source: “Living in a hyperconnected world”, Swiss Re

In the news…

“New Capital” – Insurance-Linked Securities

$99 Trillion

Global Bond Market Global Equity Market

(Market Capitalisation)

Global Asset-Backed

Market

$15 Trillion

3rd Party

Capital

$69 Trillion

Assets by Selected

Investor Class

$128 Trillion $65 Billion

• Accounts for over 20% of worldwide Catastrophe Reinsurance

capacity ($65B out of $300B)

“New Capital” as an emerging risk

• Most (re)insurers take advantage of Insurance-Linked Securities (ILS) appetite as a cheap form of capital

• What happens if there is a flight away from insurance as an

investment class?

Cat Bonds

Managing emerging risks

Source: Concept Note: Improving the Management of Emerging Risks, International Risk Governance Council, 2011

Set Emerging Risk

management strategy as

part of overall strategy

Build capacity for

surveillance, foresight,

dialogue and co-

operation

Set surveillance

incentives and rewards,

encourage contrarian

views

Anticipate adverse

outcomes, be prepared to

revise decisions

Managing emerging risks

• Reinsurance solutions can mitigate unknown and systemic risks

Limit

Retention

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2015

Claims Made Casualty Catastrophe Cover

Turning risks into insurance opportunities

• Coverage expansion

• New classes of business

• E.g. Cyber Liability Insurance

– Demand for cover continues to grow

due to increasing number of incidents

– Difficult to underwrite, mitigate risk and

track accumulations

– USA at forefront of innovation

• high interest in data protection and

development of related laws

Conclusion

• There will always be known unknowns and unknown unknowns

• Technology is ever evolving

• We are more connected globally than ever before

• Ongoing management is required to minimise downside risk

• Change creates opportunities